TheCorporateCounsel.net

PwC’s latest publication on non-GAAP measures summarizes the topics covered in recent non-GAAP comment letters, particularly focused on comment letters since the staff’s 2022 updates to non-GAAP C&DIs. But what caught my eye the most was this blurb related to earlier guidance:

In March 2020, the SEC staff issued disclosure guidance related to COVID-19, including how non-GAAP measures could be impacted by the pandemic and what companies should consider in their non-GAAP disclosures. One topic discussed was when a non-GAAP measure is reconciled back to a comparable GAAP measure that is still provisional in nature because the measure may be impacted by adjustments that may require additional information and analysis. The SEC staff has recently stated that this guidance is not specific to COVID-19 and should be applied to other situations that could impact a company’s non-GAAP measures as well. Companies should continue to consider this guidance.

With the ever-increasing geopolitical uncertainty companies continue to face, it’s not surprising that COVID-related guidance may still be applicable in other contexts. In the 2020 guidance, while the Staff stated that “the Division would not object to companies reconciling a non-GAAP financial measure to preliminary GAAP results that either include provisional amount(s) based on a reasonable estimate, or a range of reasonably estimable GAAP results,” it described the limited circumstances when that may be acceptable and explained the Staff’s expectations for contextual disclosure:

In addition, if a company presents non-GAAP financial measures that are reconciled to provisional amount(s) or an estimated range of GAAP financial measures in reliance on the above position, it should limit the measures in its presentation to those non-GAAP financial measures it is using to report financial results to the Board of Directors.  We remind companies that we do not believe it is appropriate for a company to present non-GAAP financial measures or metrics for the sole purpose of presenting a more favorable view of the company.  Rather we believe companies should use non-GAAP financial measures and performance metrics for the purpose of sharing with investors how management and the Board are analyzing the current and potential impact of COVID-19 on the company’s financial condition and operating results.

If a company presents non-GAAP financial measures that are reconciled to provisional amount(s) or an estimated range of GAAP financial measures, it should explain, to the extent practicable, why the line item(s) or accounting is incomplete, and what additional information or analysis may be needed to complete the accounting.

– Meredith Ervine